Delhi High Court - Orders
The Pr. Commissioner Of Income Tax ... vs Shahi Exports Pvt. Ltd on 10 January, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Purushaindra Kumar Kaurav
$~64
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 27/2024
THE PR. COMMISSIONER OF INCOME
TAX -CENTRAL -1 ..... Appellant
Through: Mr. Ruchir Bhatia, Adv.
versus
SHAHI EXPORTS PVT. LTD. ..... Respondent
Through: None.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
ORDER
% 10.01.2024 CM APPL. 1522/2024 (14 Days Delay )
1. Bearing in mind the disclosures made, the delay of 14 days in filing the appeal is condoned.
2. Application shall stand disposed of.
ITA 27/20243. Notice. Although the respondent is stated to have been placed on advance notice, none has appeared on its behalf when the matter was called. Consequently, let learned counsel for the appellant take steps for service upon the said respondent through all permissible modes including via approved courier service. The respondent may file a reply, if so chosen and advised, within a period of three weeks from today.
4. A reading of the order dated 19 June 2023 of the Income Tax Appellate Tribunal ["ITAT"] would indicate that the dispute itself emanates from the provisions made in the Technology Upgradation Funds Scheme ["TUFS"]. While dealing with this aspect, the ITAT in paragraph 15 of its order has held as follows:-
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15. We have given thoughtful consideration to the orders of the authorities below. We have also the benefit of going through the objectives, financial and operational parameters and implementation mechanism for TUF Scheme in respect of interest subsidy. We find that under the said Scheme, Government recognised that technology upgradation in the textile industry would result in capacity expansion and modernisation which would have direct impact on employment generation, exports and globalisation of textile trade. In order to achieve such objects, TUF Scheme was introduced by the Government to provide subsidy on loan taken for technological upgradation by the units in the textile industry. We are, therefore, of the considered view that the purpose of the Scheme satisfies the test laid down by the Hon'ble Supreme Court in the case of Ponni Sugars [supra].
5. We note that the issues that arise would principally have to be considered bearing in mind the following observations which were made by the Supreme Court in Commissioner of Income-Tax, Madras vs. Ponni Sugars & Chemicals Ltd. [(2008) 9 SCC 337]:-
"13. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. The contention of the assessee in that case was dismissed by the Tribunal and, therefore, the assessee had come to this Court by way of a special leave petition. It was held by this Court on the facts of that case and on the basis of the analyses of the Scheme therein that the subsidy given was on revenue account because it was given by way of assistance in carrying on of trade or business. On the facts of that case, it was held that the subsidy given was to meet recurring expenses. It was not for acquiring the capital asset. It was not to meet part of the cost. It was not granted for production of or bringing into existence any new asset. The subsidies in that case were granted year after year only after setting up of the new industry and only after commencement of production and, therefore, such a subsidy could only be treated as assistance given for the purpose of carrying on the business of the assessee. Consequently, the contentions raised on behalf of the assessee on This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/01/2024 at 03:36:40 the facts of that case stood rejected and it was held that the subsidy received by Sahney Steel could not be regarded as anything but a revenue receipt. Accordingly, the matter was decided against the assessee. The importance of the judgment of this Court in Sahney Steel and Press Works Ltd.'s case (supra) lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant."
6. We consequently admit the instant appeal on the following questions of law:-
A. Whether on the facts and circumstances of the case, the ITAT was right in treating subsidy received as capital receipt rather than revenue receipt even when such 'interest subsidy' received was used to meet "recurring expenses"?"
7. List again on 06.03.2024.
YASHWANT VARMA, J.
PURUSHAINDRA KUMAR KAURAV, J.
JANUARY 10, 2024/Neha/p This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 25/01/2024 at 03:36:41